In the midst of a reality comprised of heated political controversies and the challenges of COVID-19, the Knesset recently ratified the historic peace deals with Bahrain and the United Arab Emirates, which coincided with the announcement that Sudan would also normalize relations with Israel.
While these agreements represent a landmark political achievement, what are their implications from an economic standpoint? Despite a number of commentators touting an impending financial windfall, no dramatic benefits on that front should be expected for Israel nor its Arab peace partners.
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Take the example of the NY Koen Group, an American Jewish-owned corporation that recently announced its intention to acquire Israir airlines. The company stated that it considers the purchase of Israir to be a significant development because NY Koen seeks to expand its activities in the aviation sector and to build on the market segment of the middle-class traveler. This potential acquisition is an expression of an economic commitment reflected by a diplomatic agreement. It will also open new destinations for the Israeli traveler.
However, in the economic sense, it is not earth-shattering news. Israel routinely draws business interest from companies around the world in countries which have friendly ties with the Jewish state. Israel also exports its products to many nations. Therefore, while Israel's new options for commerce with the UAE, Bahrain, and Sudan are certainly encouraging, their benefits should not be exaggerated.
Now, newly initiated maritime talks with Lebanon present a contrast to Israel's other agreements in the Arab world. It is fairly clear that neither Israel nor Lebanon have any aspirations to engage in security or strategic cooperation; their interest is purely economic. At the same time, the economic impact would also be modest.
The negotiations between Israel and Lebanon center on economic rights in the Mediterranean. The disputed area stretches some 860 square kilometers (332 square miles) which contain natural gas deposits. There is a clear economic interest in advancing the talks with Israel from the Lebanese point of view, despite Hezbollah's opposition to any rapprochement with the Jewish state, since Lebanon is traversing an ongoing economic collapse. But why is Israel so enthusiastic?
Presently, Israel is flooded with natural gas and consumes less than 1% of its gas reserves. It also exports natural gas to Egypt and is efficiently working towards exporting that resource to European countries as well. Simultaneously, there is a worldwide trend towards reducing gas prices because the US, Qatar, Russia, and even Australia are flooding the market with natural gas.
Therefore, even if Israel obtains everything it wants from Lebanon, the economic benefit of a deal would be minimal. Even considering the prospect of holding additional gas reserves, assuming Israel's gas consumption will rise and global demand for natural gas will continue to grow, this activity will not yield tremendous profit.
The global market is trending towards renewable energies, mainly due to environmental aspects as well as the aspirations of countries that are not energy-independent to produce energy without dependence on other nations. The Europeans would be happy to diminish the threat posed to their energy supplies from the war between Azerbaijan and Armenia, where there is with Turkish, Iranian, and Russian involvement. Indeed, the European interest in the sounds of battle heard from the Caucasus region results from the fact that Azerbaijan is a significant oil provider to the continent.
Economic considerations for the future must be reflected in investing in alternative energies – both in construction and in technological development designed to improve economic viability. Many countries are poised to increase their reliance on solar and wind energy sources. With the world slowly abandoning fossil fuels and natural gas, it is incumbent upon Israel to take that trend into account when formulating its plans in the energy industry.
Israel has a natural interest in diversifying its future options in the energy market and in all industries, including through examining the doors opened by normalization with the Arab world. Yet overstating the economic upside of both the recently reached peace deals and the ongoing talks with Lebanon also reflects the human tendency to pursue possibilities that are familiar and available, at the expense of exploring new and untapped ideas. Additional destinations for exporting Israeli natural gas are welcome, but from a global perspective, the future is found in the sun and the wind.
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